Warming an Old Soup

Fri, Aug 16, 2013

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If Sanusi Lamido Sanusi, governor of the Central Bank of Nigeria, has his way, existing naira notes in the country will be redesigned

|  By Anayo Ezugwu  |  Aug. 26, 2013 @ 01:00 GMT

BARELY one year after President Goodluck Jonathan suspended the Central Bank of Nigeria, CBN, plans to introduce N5000 note, the apex bank has come up with a new policy. The CBN, this time around, wants to redesign the naira. Sanusi Lamido Sanusi, CBN governor, said on July 17, that the apex bank may go back to its earlier plan to redesign the naira in order to forestall massive counterfeiting of the nation’s currency.

He said that the redesigning of the Naira has become pertinent, as it would conform to global best practices. He said the redesigning of the currency would help to curb the activities of counterfeiters in the country. “One of the reasons we wanted to have a restructuring of the redesign of the currency a few months ago was because many of our notes had been in existence for upward of eight or even 10 years. Now, the best practice is that within a period of five to eight years, you redesign the currency because after that period, counterfeiters tend to catch up.

“Even at that, Nigerian notes, in terms of what we see as counterfeit and processing, the percentage is very low. Now, unfortunately, the redesign suffered because of all the noise around N5, 000 note and therefore, it is being delayed because that is what would have made it impossible for counterfeiters to catch up, so till they have to wait for another five, six and seven years before they learn how to counterfeit, by which point, the CBN should be redesigning the notes again. So, I suppose that at some point, the country would have to revisit the issue of redesigning the notes but at the moment, based on popular demands, we have had to step down the redesign,” he said.

He explained that recorded counterfeit notes per one million pieces processed were about 3.9 pieces in 2007; six pieces in 2008; 8.4 pieces in 2009, 7.4 in 2010; 5.4 in 2011 and 8.4 pieces in 2012. He lamented that a recent proposal to redesign the currency was rejected outright by the authorities.

But the redesigning proposal has been criticised by many analysts with some of them suggesting that redenomination or decimalisation would make the naira more portable, and also provide room for primary kobo coins. They said that it would fill the gap for change in small transactions, and also make more competitive the pricing of consumer products more practical.

Les Leba, economic analyst, said that what the naira needs now is redenomination. He said that if the naira is restructured by two decimal points, then, N1000, which is the highest in currency profile, will be replaced by a N10 denomination. Similarly, existing N100 note will become N1. Consequently, the new N1 denomination can then be fabricated as a coin, and still have the same purchasing value as the old N100 note.   In the same manner, N50 would similarly be a 50Kobo coin, while the current N10 will become 10 kobo coin.

“A new redenominated currency profile, would not only accommodate the desired quality of portability, it would also increase the purchasing power of coin denominations and make them attractive for transactions and for provision of change. Furthermore, consumer products can become more competitively priced in steps of plus or minus 1kobo, rather than the unusually wide leap of N5 or more, because of scarcity of primary coins. The advantages of redenomination may however, be short-lived, if the abiding economic instigators of inflation are not adequately tackled,” he said.

According to him, neither redesigning nor redenomination of a currency completely satisfies the qualities of portability, store of value and acceptability as a medium of exchange. “I have consistently argued that the issue of value is the major problem with naira profile; for example, a much stronger naira value, just like redenomination, would make primary kobo coins more valuable. However, if the root causes of double-digit annual inflation rate remain unresolved, the purchasing power of the redenominated naira would also be rapidly eroded.”